Andreessen Horowitz has been forced to defend its early stake in Instagram, the photo-sharing app acquired by Facebook this month for about $1bn, despite the venture capital firm receiving a more than 300-fold return in two years.
Ben Horowitz, one of the group's founders, alongside Netscape's Marc Andreessen, was defensive on his personal blog, saying: "Ordinarily, when someone criticises me for only making 312 times my money, I let the logic of their statement speak for itself," before going on to explain why he did not make "even more money".
The controversy springs from Andreessen Horowitz's decision not to invest more in Instagram after the initial $250,000 it put in as part of the company's first round of "seed" funding in March 2010. That investment has yielded a profit of $78m, according to Mr Horowitz.
However, not following through in later funding rounds left Mr Horowitz on the sidelines for one of the biggest internet hits of recent years. Instead, Matt Cohler, a former Facebook executive and partner at Benchmark Capital, was able to lead the series A round that determines which investor is in pole position, with 20 per cent or more of the company up for grabs.
Defending the decision not to back Instagram further, despite evidence that the popularity of its app was already taking off, Mr Horowitz said that his firm had faced an ethical dilemma. It had invested in another photo-sharing app called PicPlz before Instagram, which had not initially focused on pictures, changed course and moved into the same business.
Faced with the "completely unethical" option of investing more in Instagram, which might have harmed another of its investments, Andreessen Horowitz had backed away and handed over valuable investment rights to Instagram's founders, Mr Horowitz said. The soaring valuations of social media sites and the small amounts of capital needed to launch them have brought huge payouts for some of the investors who have made early, seed-round investments.
Peter Thiel, another Silicon Valley investor, paid $500,000 for a 10.2 per cent stake in Facebook, poised to represent one of the internet's biggest-ever wins with the social networking site's expected IPO though disposals and dilution from later stock sales have since seen his stake fall to 2.5 per cent.
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